Discussion:Foreign Accounts Form 90-22.1
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Discussion Forum Index --> Tax Questions --> Foreign Accounts Form 90-22.1
| 25 January 2008 | |
| Client has an escrow account in Costa Rica. Funds are being used to build property improvements. Client funds 50%, properly structured IRA funds 50%. Is a Form 90-22.1 required to be filed? This is one of the two questions at the bottom of Form 1040, Schedule B. I have only encountered this one other time. Anyone else have experience with this one? | |
Michaelstar (talk|edits) said: | 25 January 2008 |
| If the client has an account greater than $10K - than yes - they are required to file Form 90-22.1. Read the form instruction and you'll move through the process fine. At first glance - seems complicated but it really is not. | |
| 25 January 2008 | |
| I wonder whether the Costa Rican escrow account is considered a foreign trust and whether Form 3520 is needed. | |
| 25 January 2008 | |
| It is actually a Costa Rica LLC, formulated to purchase the land and build on it. The LLC is 1/2 owned by a US taxpayer and his IRA. It is all totally legit. It is simply new territory for me and I really want to get it right. I'll look at the 3520. I was also wondering if a US Tax Return may be due for the LLC. However the LLC is not a US entity.
I provided the TP with a Form 90-22.1 and asked him to start collecting information to file it. | |
| 25 January 2008 | |
| I am not sure how you have concluded it is "all totally legit" if it is new territory for you.
If you don't file a check the box election to treat the Costa Rican limitada as a partnership, then it will default to being treated as a controlled foreign corporation. As a corporation, Form 5471 will need to be annually filed (by both the individual and by the IRA). If you elect to treat as a partnership, then Form 8865 will need to be annually filed. Note that the penalties for failing to file these forms start at $10,000 per year. There may be other forms (and other potential penalties). If a foreign trust exists, the penalties can be quite severe for not reporting properly. Buena suerte! | |
| 25 January 2008 | |
| Hey Smktax- Now this is powerful info. When I said the IRA was legit it was as it was all set up by Pensco, who as a provider of self directed IRAs seems to check out okay. The Form 5471 or 8865 is the kind of thing I suspected when I learned a Foreign LLC was created. This is what have no experience with. The "account" in Costa Rica will have no income, unless of course some day the property is rented or sold. For now as I understand it, the LLC receives money, and is building improvements. I'll be looking at the Forms you mentioned and do some learning. Thanks, I appreciate this.
PS- If you have never read a Costa Rican LLC, you are in for surprise. I gave up on page one. | |
| 26 January 2008 | |
| I wonder if the LLC may actually be a PFIC once you start looking at the asset test? | |
| 31 January 2008 | |
| Since the LLC is owned by a husband and wife, and his IRA, could this not be considered "A foreign eligible entity with a single owner electing to be disregarded as a separate entity"?
If so then all transactions would flow to the individual return. Or is it as simple as this?- A foreign entity exists, that is owned by a US citizen, therefore, a 5471 or 8865 is required. | |
| 1 February 2008 | |
| OK. I need to research related party rules, foreign entity filing requirements, and see where it takes me. I have an MT from UTSA and certainly know how to do it. Thanks for the prior posts, I am at least off in the right direction. Of course the hardest part is preparing the client for the bill. Any one I refer him to is going to charge at least as much or more than I will. I'll get my reading light, a box of bon bons, glass of wine, and get started. More later. | |
| 1 February 2008 | |
| So needy I am answering my own posts. How sad it that? :( | |
| 1 February 2008 | |
| The IRA is a trust. Sec. 408(a). A domestic trust is a U.S. person. Sec. 7701(a)(30). The Costa Rican entity is owned by an individual (or two) and is owned by a trust. Thus, it is owned by two or more persons and cannot be treated as a disregarded entity. | |
| 3 February 2008 | |
| Oh, puleeze.
The IRA: US domestic trust owning 100% of a Foreign Corp. As the direct owners, the IRA's administrators are responsible for filing Form 5471, TD F 90-22.1, and any SubPart F income tax. The schedules for 5471 shows how much SubPart F income, if any, flows to each direct and indirect owner. The H&W: As individual INDIRECT owners, they too must file A COPY of the 5471 with thier individual return and report any income that flows through to thier tax return. If they have signature authority over the accounts, they also file a TD F 90-22.1. | |
| 3 February 2008 | |
| The IRA and TP each own 50%. I have had all of five minutes to research so far, and have some plowing to do. However, what I have learned so far is that either can file the US required returns, and just name the other in the filing. Both do not have to file. Truly, I need to get the rules in front of me and read them. The thread has certainly identified what I need to do, now I need to do it:). Thanks for the input, I am sure it will be helpful as I move forward. | |
